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Class Hfr?6&7 
Book HflC 



tA^y LIBRARY 
OF VpJ^GRESS 



INSURANCE: 2285 B. C—1906 A. D. 

Various Systems ; Objects, Advantages; 
Duty of Insured and Insurer ; How to 
reduce Losses and Rates. 



A LECTURE 



DELIVERED AT THE 



University of Pennsylvania 
October 17, 1906 



BY henry darrach 

Of the Philadelphia Bar 



COPYRIGHTED 



PHILADELPHIA : 
T. & J. W. JOHNSON CO. 
e k 535 Chestnut Street 

1906 



ty 

d 



Two Copies Rtecjlveu 

JAN 12 190? 

! A.Oopyn#ht lap/ j 





/US'* + 7 



2285 B. C— 1906 A. D. 

BY 

HENRY DARRACH, 

Of the Philadelphia Bar, 

Delivered at the University of Pennsylvania, 
October 17, 1906 



From the earliest records it is learned that humanity 
recognised that calamitous consequences had occured 
from certain unforseen and uncontrollable events, and were 
likely to re-occur in periods of longer or shorter duration ; 
and to guard against their evil results methods of indem- 
nity were early adopted. 

It may be presumed that in all ages and in all countries Indemnity 
some one or more methods of indemnity were in use, and in a11 
that all of the older systems, or some of their modified countries 
forms, are still in use, and under certain conditions seem 
satisfactory. 

In order to understand the value of the old methods, it 
is well to consider the time and country in which they 
were in use, and how far they gave or were intended to 
give protection. 

The old systems were never used for mercantile and 
manufacturing protection and credits (except marine insur- 
ance), but confined to protect property of small value and 
in limited areas. 

The subjects covered by insurance have necessarily been 
a matter of growth, and have expanded to such an extent 
as to cover almost every known contingency. 

The various Systems of Indemnity may be prop- 
erly grouped under five heads : — 



. 4...-% 

1. GOVERNMENT INSURANCE.' (P. 4.) 

2. GUILD SYSTEMS. (P. 7.) , 

3. FIRE BRIEFS OR KING'S LETTERS IN ENGLAND. (P. 12.) 

4. INDIVIDUAL UNDERWRITERS. (P. 13.) 

5. PRIVATE CORPORATIONS. (P. 15.) 



Babylon, 
2285 B. C. 
2242 B. C. 



Brig-and. 



Thunder- 
storm. 
Lack of 
Water. 



Law of Mos- 
es, about 
1300 B. C. 
Setting Fire 
to Fields. 



Rome. 
Marine 
Insurance. 



I. GOVERNMENT INSURANCE. 

2285 B. C— 1906 A. D. 
National, State and Municipal. 

The earliest form of insurance known to have existed 
is to be found in the Code of Hammurabi, (or Kammurabi, 
or more exactly Ammu-rabi, the Biblical Amraphel, Gen. 
xiv, 1), King of Babylon, B. C. 2285-2242. This is the 
oldest code of laws in the world, during the time of Abra- 
ham, and over 4,000 years ago. Sections 23,48, viz. : 

" If the brigand has not been caught, the man who has 
been despoiled shall recount before God what he has lost, 
and the City and Governor in whose land and district the 
brigandage took place shall render back to him whatsoever 
of his was lost." (Sec. 23.) 

" If a man has a debt upon him and a thunderstorm, 1 
ravaged his field or carried away his produce, or the corn 1 
has not grown through lack of water, in that year he shall 
not return corn to his creditor, he shall alter his tablet and 
shall not give interest for that year." (Sec. 48.) 

Note : Class legislation, protecting the farmer at the cost 
of the creditor. 

" If a fire break out and catch in thorns, so that the 
stacks of corn or the standing corn, or the field be con- 
sumed therewith ; he that kindled the fire shall surely make 
restitution." (Exodus xxii, 6.) 

During the Republic the Government (Rome) for the 
purpose of encouraging merchants who had contracted to 
supply the army abroad with provisions, agreed to bear all 
losses that might happen to the cargoes during the voyage 



from perils of the sea or hostile capture. (Livy L. 23, 
ch. 49; L. 25, ch. 3.) So Seutonius (L. 25, ch. 2) says 
that during the period of apprehended scarcity at Rome 
the Emperor Claudius offered indemnity to those who 
would bring provisions to the city. (A. D. 43 Haydn's 
Die. of Dates.)* 

Similar plans for Government insurance during maritime Rouen 
war are still urged. At the Rouen conference, 1900, of Conference, 

IQOO 

the International Law Association, it was stated that the 
merchants of Great Britain favored this system of Govern- 
ment indemnity instead of the adoption of the present sys- 
tem of capture of private property. (Elliott on Ins., p. 5, 
n. 10.) 

Thomas, Count of Flanders. By Article xi of the law Fenders, 

A. D. 1240. 
(Cora, or Keure, as it is termed), there is recited the follow- 
ing liability of the Community, known as the Custom of 
Furnes, viz. : 

14 In whatsoever house a fire shall have been secretly Custom of 
made, the whole place instantly makes good the damage urnes 
through those whom the guardians select ; but if the male- 
factor can be found out he is banished forever, and the 
damage is made good out of his property ; the residue in- 
deed he yields up to the Court. Truly he who can excul- 
pate himself from the accusation will be commended by 
those guardians ; but until he can do so, he is suspended. 
All his goods will be in the pleasure of the Court; the 
damage being first restored to him who has the injury." 

When the entire community was made responsible for 
the payment of fire losses, there is no record of the method 
in which the collection was made ; whether by a flat rate 
per value of the property to be charged, or a special rate 
for each, according to its particular hazard. (Walford 
Vol. 3, p. 438.) 

The Grand Khan, Emperor Kubli Khan, sends every China, 

year his commissioners to ascertain whether any of his A " 
1 259- 1 294. 



* Emerigon on Ins. p. 76 (1784 ; Puffendorf , Bk. v, ch. 9 (1710) ; 
Mag-ens on Ins.. Vol. I, p. 1 (1755); Park on Ins., Intro, iii (i8co). 



subjects have suffered in their crops of corn from unfavor- 
able weather, from storms of wind, or violent rains, or by 
locusts, worms, or any plague ; and in such cases he not 
only refrains from exacting the usual tribute of that year 
but furnishes them from his granaries with so much com 
as is necessary for their subsistance, as well as for sowing 
their land. With this in view, in times of great plenty, he 
causes large purchases to be made of such kinds of grain 
as are most servicable to them, which is stored in granaries, 
provided for the purpose in the several provinces and 
managed with such care as to insure its keeping for three 
or four years without damage. 

It is his command, that these granaries be always kept 
full in order to provide against times of scarcity ; and when, 
in such seasons, he disposes of the grain for money, he re- 
quires for four measures no more than the purchaser would 
pay for one measure in the market. In like manner where 
there has been a mortality of cattle in any district, he makes 
good the loss to the sufferers from those belonging to him- 
self, which he has received as his tenth of produce in other 
provinces. 

Were an accident to happen by lightning to any head of 
cattle, flock of sheep or other domestic animals, whether 
the property of one or more persons, and however large 
the herd may be, he does not demand the tenth of the in- 
crease of such cattle during three years ; and also if a ship 
laden with merchandise has been struck by lightning, 
he does not collect from her any custom or share of 
her cargo. (Life and Travels of Marco Polo, ch. 21, 
p. 227.) 
Russia. In Russia the National Government does not undertake 

fire insurance, but in some of the towns the inhabitants are 
jointly responsible for accidental fires, and the town or 
municipality makes enforced contributions according to 
the status and wealth of the inhabitants of the town or 
villages. (Charles Stewart, Glasgow, 1882 ; Beddall's ad- 
dress, 1898.) 



In 1554. Holland raised loan by sale of life annuities. Other 
In 1692. English government granted life annuities. Countries 

In 1778. Denmark — Municipal fire insurance introduced 

into Copenhagen and other cities. 
In 1807. Frankford — State fire insurance prevailing but 

abandoned in 1869. 
In 1849. Italy — (Parma and Modena) State insurance of 

fire and hail. 
In 1850. France — Grants life annunities, and in 1868 life 
and accident insurance under State guarantee. 
In 1853. England — Government life insurance. 
In 1869. New Zealand — Life insurance by government. 
In 1870. Switzerland — State (or control) fire insurance 

introduced before this date. 
Note : The number of schemes which have at various 
times and in various countries been projected for placing 
insurance under control of government, and also the argu- 
ments which have been used to the effect, that it is one of 
the functions, not to say duties, of the government to take 
control of the insurance interests, probably far exceed the 
expectations of those who have given but casual attention 
to the subject.* 



II. GUILDS, MUTUAL OR BENEFICIAL 
ASSOCIATIONS. P. 4. 

From Early Ages to 1906 A. D. 

The guild systems have nurtured the principle of associa- Guilds, 
tion for the common protection in wealth and in adversity, 
and have a remote antiquity. 

It is to be traced through the Oriental races, back to the 
ancient Hindoos ; and in fact seems coeval with Commerce 
and Civilization. 

The guilds were in truth the insurance associations of 
the Middle Ages and probably the only ones which were 



*Walford's Cyc., Vol. 5, p. 474; E. F. Beddall, address, 1898; 
Farnum's, Yale lecture, 1903-4 ; Elliott on Insurance, Sec. 2, note 10. 



Relief by 
Guilds. 



Greece. 



Greece and 
Rome. 



English 
Guilds. 



required or could have existed in that state of society. 
(Walford's Cyc, Vol. 3, p. 438.) 

The relief granted by many of these guilds were, viz. ; 
relief in poverty, sickness, old age, loss of sight, limb, loss 
of cattle, fall of a house, making pilgrimages ; loss by fire 
flood, robbery, shipwreck ; imprisonment, defending law- 
suits, being deaf and dumb, afflicted with leprosy, dowries 
on marriage of females, or on their entering a house of 
religion, aid in temporary pecuniary difficulties, aid to ob- 
tain work, repair of roads and bridges. (Walford, Vol. 5, 

P. 343.) 

The Greeks in the Second and Third Centuries, B. C, 
had their associations, called Eranoi or Thiasoi, which 
were numerous at Rhodes, in the Islands of the Archi- 
pelego, at the Piraeus, and in other important places. 
These societies partook more nearly of the character of 
mediaeval guilds than did the Roman; the members paid 
contributions to a general fund, aided one another in neces- 
sity, provided for funerals, met in assembly to deliberate 
on their affairs, and celebrate feasts and religious sacrifices 
in common. Women could be members, and were ad- 
mitted to the meetings. (Encyclopaedia Britannica.) 

There existed, too, among the poor, both of Greece and 
Rome, mutual insurance societies, which undertook to 
provide for their sick and infirm members. (Pliny Ep. X, 
94, and the remarks of Naudet, pp. 38-39 : Lecky Hist, of 
European Morals, p. 83.) 

The Reformation found the guilds in England and other 
places wealthy, conservative, and not over-careful of the 
rights and interests of those outside their own membership. 
Henry VIII, of England, having found the plunder of the 
church insufficient to meet the wants of his court and his 
army of spies, made a descent upon the guilds also. Only 
those survived that were able to make a show of stout re- 
sistance, usually combined with a " loan " to His Majesty. 
This policy was repeated by Edward VI and Elizabeth. 
In fact, the guilds were destroyed and nothing was sub- 



stituted for them. (Campbell's Insurance and Crimes, 
P. 125.) 

In China insurance has long been carried on, how long China. 
is the only mystery connected with it. Its application has 
been made in various useful purposes, as fire insurance, 
life insurance, relief in times of sickness, insurance on 
growing crops against robbery or by cattle ; destruction 
by civil commotion, also law-suits. (Walford, Vol. 1, p. 
512.) 

"Societies for the assistance of those who have funerals Chinese 
are of common occurrence, and are of many different S ociet?es 
kinds. There is special reason for the organization of 1899. 
such leagues (called pai-she). Sometimes each family 
belonging to the league pays into the common fund a 
monthly subscription of 100 cash a month (a single cash 
may be taken as one-thousandth of a Mexican dollar). 
Each family so contributing is entitled upon occasion of 
the death of an adult member of the family (or perhaps 
the older generation only) to draw from this fund, say, 
6000 cash, to be used in defraying expenses. If there is 
not so much money in the treasury as is called for by 
deaths in families of the members, the deficiency is made 
up by special taxes upon each member. According to a 
plan of this sort, a subscriber who drew out nothing for 
five years would have contributed the full amount to 
which he is entitled, without receiving anything in re- 
turn. A mutual insurance company of this nature is 
probably entered into on account of the serious difficulty 
which most Chinese families experience in getting to- 
gether ready money. From a financial point of view there 
may be nothing saved by the contribution, but practically 
it is found to be easier to raise 100 cash every month than 
to get together 6,000 cash at any one time. 

"Another form of mutual assistance in the expenses of 
funerals is the following: A man whose parents are well 
advanced in life knows that he may at any time be called 
upon to spend upon the ceremonies at their death an 
amount which it will be difficult to raise. He therefore 
'invites an association' (ch'ing hui), each member of 



IO 

which is under obligation upon occasion of the death of a 
parent to contribute a fixed sum, say 2,000 cash. The mem- 
bership will thus be composed exclusively of those who 
have aged parents. The number of names may be forty, 
which would result, whenever a call shall be made, in the 
accumulation of 80,000 cash (80 Mexican dollars). With 
this sum a showy funeral can be paid for. At each fu- 
neral all the subscribers to the funeral fund are present ex 
officio, and it is not necessary for them to contrbute any 
other share than that represented by the 2,000 cash of the 
assessment. Each member of the association appears in 
mourning costume, and wailing as would become a near 
relative of the deceased. The presence of so large a num- 
ber of mourners in addition to those really near of kin 
gives a great deal of "face" to the individual whose par- 
ent has died, and this is perhaps quite as attractive a 
feature of the arrangement as the financial assistance. 
The strain upon the resources of a single courtyard or set 
of yards in preparing food for the guests, often number- 
ing hundreds, is very great. The adage says truly, 

"When old folks die, the rest feed high." 

Chinese A family, for example, wishes to marry a son on a scale 

Wedding w hich the family resources will not warrant. It then re- 
1899. ' sorts to an expedient, which is called "drawing friends by 

means of other friends." Let us suppose that it is desired 
to raise the sum of 100,000 cash. A hundred cards of in- 
vitation are prepared, ten of which are sent to ten friends 
of the family, who are invited to a preliminary feast. 
These friends receive the extra cards of invitation, and 
each one gives a card to nine other "friends" of his own, 
who agree to attend the wedding in question, each one 
bringing with him as a share a string of cash. By this 
means a family with little wealth and few connections 
is able suddenly to blossom out at a wedding with a hun- 
dred guests (many of whom nobody knows), and all ex- 
penses are provided for by the liberal contribution of the 
"friends" and of the friends of the "friends." The only 
motive for the act on the part of the original "friends" 
is friendship and the gustatory joy of the wedding feast. 



II 

The only motives for the friends of the "friends" are their 
friendship and the same joyful feast. It is needless to 
observe that the 100,000 cash thus suddenly raised is a 
debt, which the family receiving it must repay in future 
contributions. 

"The reason for the organization of a society for watch- Chinese 
ing the crops is the fact that ?o many poor people every- for 
where exist, whose only resource is to steal. In a country Watching- 
where the poor are in such a majority as in China, and ^F ' 
where the fields are altogether open, it is desirable, if not 
necessary, to have some plan by which property so un- 
protected can be effectively watched. The farmer's hope 
is that seeing that some one is on guard they will go else- 
where, and steal from those not on guard. The villages 
which have entered into some one of the associations gen- 
erally proclaim this fact by painting or whitewashing 
upon the side of some conspicuous temple four characters 
signifying that the fields are looked after in common. 
When a fixed number of persons is employed the expense 
is shared by the village, being in fact a tax upon the land, 
paid in the direct ratio of the amount of land which each 
one owns. The details are agreed upon at a meeting called 
for the purpose in some temple convenient to all the vil- 
lages, and the meeting is attended by representatives of 
each village interested. At this meeting are settled the 
steps to be taken in case of the arrest of the offenders." 
(Village Life in China. Arthur H. Smith, D.D., 1899.) 

It is perhaps of little use attempting to ascribe to any General 

...... P , . . Remarks on 

one country or race the special initiative of these mstitu- Guilds. 

tions, any more than it would be to say that the custom 
of men to congregate in towns originated with this or 
that nation. Human nature is the same everywhere, and 
two motives induce men to join together : weakness, seek- 
ing the power of numbers for resisting oppression, or for 
mutual assistance ; and the affinity which those pursuing 
the same occupation and possessing the same interests 
have for each other. 

These societies "may thus have one history in China, 
another in India, another in Greece or Rome, another in 



12 



Similar 

Systems, 

1906. 



the Europe of the Middle Ages; the like needs will re- 
quire the like kinds of help, and develop institutions 
which, amid whatever diversities of outward garb, will 
substantially fulfil the same ends." (J. M. Ludlow.)* 

Somewhat similar systems are in existence at the pres- 
ent time, and cover many of the points of relief in the old 
guild system, and some of the points mentioned are now 
carried out by Corporations and Associations, some with 
a capital stock and others working under the Mutual 
System. 

Under these benevolent institutions may be placed the 
Odd Fellows, providing for cases of death and sick bene- 
fits; having lodges in the United States, Sweden, Switz- 
erland, Denmark, New Zealand, France, Hawaii, Japan, 
Australia, Germany and the Philippine Islands. 



Fire 

Briefs, 

1653- 



III.— FIRE BRIEFS (OR KING'S LETTERS) 
IN ENGLAND. P. 4. 

1653-1906 A.D. 

"One expedient that was tried before the invention of 
fire insurance as a separate trade was what is known as 
the 'fire brief.' I do not say that this device was not in 
use long before the guilds were destroyed; in fact, it 
seems most probable that it was. But the first mention 
of it that I find (in Walford's Cyc, Vol. 3, pp. 313, 316) is 
in 1653, during the Protectorate of Oliver Cromwell. The 
idea of the fire brief was that sufferers by fire should be 
commended by the head of the nation to the benevolence 
of charitably disposed people. The occasion of the first 
fire brief mentioned was the burning of 224 houses in 
Marlborough. Copies of the order of the Council, in which 
the Protector— who personally subscribed £2,000 — re- 
quested donations, were distributed through the sheriffs 
and chief constables to the church wardens of each parish. 



* Encyclopaedia Britannica, title Guilds ; Friendly Societies 
of Antiquity, by H. Tompkins; History and Development of 
Guilds, by Bretano ; English Guilds, by Toulmin Smith ; W. E. 
Wilda, on Guilds. 



13 

Collections were made and the money was sent through 
proper channels to treasurers in London, whose business 
it was to distribute relief to the sufferers. 

"A mere glance at such a system is enough to reveal 
the opportunities it offered for imposition and fraud. Its 
speedy death was certain from the beginning. A case of 
abuse was brought before the House of Commons in 
1701. According to one of the witnesses one Pemberton 
made an offer to certain parties to provide the money to 
secure a King's brief, if the others would agree not to 
prosecute him for losses they had suffered through a fire 
that had arisen in his place, and would sign the necessary 
petition. 'He told me that he had skill in the business, and 
that he knew some men in the country that had got good 
estates by gathering charity, and that it would be a con- 
stant spring to us, said one witness. It is unnecessary 
to follow this confidence game ; it is easy to see that it 
would soon be resorted to by sharpers on the lookout 
for a chance to take the money of the King's lieges." 
(Campbell's Insurance and Crime, pp. 125-126.) 

These briefs were issued as late as 1705. About this 
date proposals were on foot to raise a permanent fund for 
fire losses, without waiting the return of the briefs, the 
fund to be provided from collections made during the 
visitations of the bishops. This was not carried out. (Wal- 
ford's Cyc, Vol. 3, pp. 313, 316.) 

While fire briefs have been discontinued in England, United 
and never known to have been in use in this country, yet I9o6> ' 
somewhat similar methods have been pursued in the 
United States to secure the necessary relief from the 
charitably disposed ; thus, to meet the San Francisco dis- 
aster (1906) committees, appointed by the Governors of 
States and Mayors of cities, secured from the community 
the requisite relief. 

IV.— INDIVIDUAL UNDERWRITERS. P. 4. 

1 194-1906 A.D. indWidual 

Prior to 1194 A.D. merchants and ship-owners in the Under_ 
r 1 *r 1- 11 writers, 

commerce of the Mediterranean were supposed to have Marine. 



14 



" Under- 
writer." 



Solvency of 
Insurer. 



Inverted 

Life 

Insurance. 



introduced the idea of Marine Insurance. (Haydn's Die. 
of Dates.) 

In the beginning of the business of Marine Insurance 
in England (in general use 1560), it was usually effected 
by policies to which individuals subscribed their names, 
each one being responsible for the sum set against his 
name and no more. It was customary for some person 
to establish an office as insurance broker or agent. To 
this office merchants resorted who wished to insure, 
others to be insured. 

If one applied to the broker, stating the ship or cargo 
on which he desired insurance, and the voyage or time, 
these were written at the head of the sheet which was laid 
upon the broker's table. 

Between him and the insured, a premium was agreed 
upon, and this also was designated. 

Then one and another of those who were willing to in- 
sure such property on such terms wrote their names 
upon the sheet under the heading above mentioned, stat- 
ing also the amount they were willing to insure ; and this 
continued until names enough were subscribed to fill out 
the whole amount which the insured desired to cover. 

From this practice grew the word "underwriter" in the 
exclusive sense of insurer, and as exactly synonymous 
with "insurer." (Phillips on Ins.) 

The individual underwriter as well as corporations 
transact marine insurance at the present time (1906) in 
England, while in the United States the business has been 
superseded by corporations. 

It frequently happened that the insured doubted the 
ability of the insurer to meet the payment of the loss, and 
in order to dissipate his fears it was allowable for him 
to effect insurance on the solvency of the underwriter.* 

In Shakespeare's time (1611) travelers before going 
abroad put out a sum of money in the hands of a person 
called a depositor, for which they were to receive two, 
three, four or even five times the amount upon their re- 



* Emerig-oti, 
troduction N. 49 



p. 205; Santerna, Part 3, Note 56; Straccha. In- 



15 

turn, the rate being according to the supposed danger of 
the expedition ; of course the sum fell to the depository 
in case the putter did not return. (Shakespeare's Tem- 
pest, Act 3, Scene 3.) 

In England prior to 1755 quite an extensive business Lotteries, 
was conducted, insuring that a lottery ticket would not 
draw a blank. (Magens, Vol. 1, p. 30.) 

The subject of fire insurance by individual underwriters F * re 
will be considered hereafter under the head of private cor- 
porations. It is not inappropriate to state that to many 
the business was not profitable, as 150 failed in the course 
of a few years prior to 1720. (Smith's Wealth of Na- 
tions, Vol. 3, p. 129.) 

At the present time (1906) fire insurance is conducted 
in England by individual underwriters. 



V.— PRIVATE CORPORATIONS. P. 4. 
1680- 1906 A.D. 

The system of fire insurance by private corporations 
was a gradual development from the guild systems and 
individual underwriters (in London). The earliest sug- 
gestion as to insurance by private corporations was in 
1609, when Count Anthony Von Oldenberg, in consider- 
ing the matter of fire insurance in his dominions, thought 
the business should be carried on by a corporation and 
not by a private individual. 

In England many efforts were made from time to time England, 
to introduce more efficient insurance systems, as well as 
fire defences. 

In 1635 Charles I. was petitioned by certain individuals 
to be permitted to insure the property in London, in ad- 
dition to which they agreed to maintain watchmen to spy 
out fires, and also to have a fire department ; in 1638 the 
petition was granted and a bill was to have been pre- 
pared, but there is no further trace of the matter. (Wal- 
ford, Vol. 3, p. 439.) 

After the lapse of thirty-one years the citizens of Lon- London 
don were suddenly awakened to the fact that the city was 1666,' Sept. 2. 



i6 



Cause that 
Led to 
Insurance 
Corpora- 
tions. 



First 

Insurance 

Company. 



First 
General 
Under- 
writing- 
Company. 



without fire protection and fire insurance; and in order 
to be a warning to themselves as well as to others a 
monument was erected at a cost of £14,500 to record in 
perpetual remembrance the great fire of September 2, 
1666. After burning four days the ruins covered an area 
of 436 acres in which over 13,000 buildings were destroyed 
and about 200,000 persons were rendered homeless. The 
fire loss has been estimated at £10,716,000, but the distress 
consequent upon the fire cannot be calculated.* 

The disaster of London (1666) was the direct cause 
that led to the introduction of private insurance Corpora- 
tions, and although it took some years to perfect the 
change, it was, however, finally accomplished, and the 
Corporation of to-day was only secured after many years 
of experience and the expenditure of vast sums of money. 

After the London fire various methods were introduced. 
Thus, fire insurance clubs were formed and continued for 
several years ; also, during the first year after the fire 
(1667), "The Fire Office" was opened in London by an 
individual underwriter named Dr. Nicholas Barbon (or 
Barton or Barron, one of the first and most considerable 
builders of the City of London), whose business was 
afterwards absorbed by a proprietary company on May 
7, 1680. Shortly after this date the municipality of Lon- 
don agreed to undertake the insuring from fire, but after 
a little over a year's trial were compelled by the Court 
to abandon the matter. 

In the following years other Insurance Companies were 
formed, and in 1696 a Mutual Company, known as the 
"Hand in Hand," was organized, and limited to the in- 
surance of buildings. This Company is now the oldest 
English Insurance Company in existence, and is the 
parent of the first fire insurance company in the United 
States, established in Philadelphia 13th of April, 1752, 
and called "The Philadelphia Contributionship for the 
Insurance of Houses from Loss by Fire." 

It has been considered by many that the present gen- 
eral system of fire insurance by Corporations began in 



* Walford's Vol. 4, p. 31 ; Haydn's Die. of Dates. 



i7 

1710, when the Sun Fire Office of London (after pur- 
chasing the business of Charles Povey, an individual 
underwriter) was established as a general fire under- 
writing Company. (Walford Cyc.) 

For information as to companies out of existence, as 
well as those now conducting the business of fire insur- 
ance, may be found by consulting:* 

The earliest English Life Insurance Company was or- Life 

s , , , . ... . Insurance, 

gamzed in 1706, and there are some traces of life insur- I70 6. 

ance to be found in very early times. The modern sys- 
tem of life insurance probably began with the Equitable 
Society for Lives, of London, about 1756. (Elliott, p. 
12; Walford, Vol. 2, p. 571.) A few years after this 
in 1759, a Corporation was organized in Philadelphia for 
the purpose of providing protection for the families of 
Presbyterian Clergymen, and known as the Presbyterian 
Ministers' Fund, and is still in existence. L,ive Stock 

Insurance on cattle carried on at Hamburg as early xjeatho?" 
as 1720. (Magens on Ins., Vol. 1, p. 34.) Cattle, 1720. 

The origin and practice of insuring against devastation Hail 
committed upon glass and crops by hailstorms was Insurance, 
founded in 1797 at Newbrandenburg, Germany. (Wal- 
ford, Vol. 5, p. 586.) 

In former times in England, when men were liable to Army Draft, 
be drawn to serve in the Militia, but might purchase a 
substitute, a system of insurance was established to pro- 
vide them with necessary funds. (Encyclopaedia Britan- 
nica, title "Insurance.") 

To Connecticut belongs the credit of the first limited Employer's 
i-i-i • • 1 . • o Liability, 

liabilty joint stock act in 1837. j8 37 . 

The policy holder is indemnified against loss that he 
may sustain by reason of demands or actions for damages 
recoverable by legal proceedings for injuries to the person 
suffered through negligence of the insured, f 

In 1840 was organized in London a Company to guar- Corporate 
antee against fraud or dishonesty of their employees. ^^ y ' 

* Walford's Cyc; Fowler's History of Ins.; Spectator Publica- 
tions (N. Y.); Annual Reports of State Ins. Depts. 

t Elliott on Insurance, Chap. 16; Dunham's Yale Lectnres, 
I903-4- 



18 



Casualty 
Insurance. 

Captivity 
Insurance. 
Etc., Etc. 

Accident 

Insurance, 

1848. 



Burglary 
Insurance. 

Steam 
Boiler 
Insurance. 



In 1853 the New York Legislature passed the initial 
act in the United States. 

These Surety Companies have extended the business 
to include almost all cases where it becomes necessary 
for an individual to give bond for the performance of a 
Contract, or where bonds are required under the rules 
of Court. In some States trust companies are permitted 
to do Surety bonding.* 

Under this title has been included from time to time 
various branches of insurance. 

It has included insurance against captivity; loss of 
life or limb ; against perils of marine travel, etc., etc. 

Many of these branches have now grown to be suffi- 
ciently important to bear distinctive titles, hence we 
have Captivity Insurance, Accident Insurance, Marine 
Passengers Insurance, all lifted out of Casualty Insurance. 
(Walford, Vol. 1, p. 460.) 

This insurance has generally been classed under the 
comprehensive designation of "Casualty Insurance." At 
best "Accident Insurance" can constitute but one depart- 
ment of Casualty business. 

Ordinary life insurance protects against accident or dis- 
ease, but it has been found that a separate insurance 
against the consequences of accident meets the require- 
ments of a large class of persons. 

It is generally considered that the business of Accident 
Insurance is of modern origin, and in its present form 
dates no further back than 1848. f 

Burglary insurance was projected in 1865. 

This system was first formulated by J. M. Allen, the 
late president of the Hartford Steam Boiler Inspection 
& Insurance Co. of Connecticut, incorporated in 1866. 

It took upon itself the supervision of the boiler and 
guaranteed its safety, paying for all damage to the boiler, 
building and machinery should explosion incidentally 
happen. 

* Walford, Vol. 3, p. 282; Elliott on Ins., p. 459; Supplee's 
Yale Lectures, 1903-4. 

t Walford, Vol. 1, p. 6; Encyclopaedia Britannica, "Insurance ;** 
Elliott on Ins., p. 38i ; Dunham's Yale Lectures, 1903-4. 



19 

Insuring merchants and traders against loss through Credit 

the insolvency and dishonesty of their customers is of 

very recent origin. (Elliott on Ins., p. 465.) 

Insures against loss through defects in the title to the J ltle 

, 1 1 /t-h- Insurance, 

real estate or by hens or incumbrances thereon. (Elliott 

on. Ins., p. 469.) 

These risks are covered by fire insurance Companies. Rent and 
They cover for loss of rent to the landlord and also to 
cover the liability of the tenant in case of destruction of 
the premises by fire. 

Tornado, Windstorm, Breakage of Plate Glass, Loss of Miscell- 
Goods in the mail, Failure of Crops, etc. 

Note. — It will not be inappropriate to briefly define 
what constitutes insurance. The Court said : "In order 
to determine whether a transaction is a Contract of in- 
surance, it must contain the element of indemnity for loss 
in respect to some specified subject from some specified 
risks ; and to constitute one or either a life, endowment 
or casualty insurance, the payment of the indemnity must 
be contingent either upon the duration of human life or 
the happening of a casualty resulting in bodily injury to 
the insured." "The peril of loss by insolvency of custom- 
ers is just as definite and real a peril to a merchant or 
manufacturer as the peril of loss by accident, fire, light- 
ning or tornado, and is in fact much more frequent. No 
reason is perceived why a contract of indemnity against 
this ever-present peril is not as legitimate a contract of in- 
demnity as a contract which indemnifies against the more 
familiar but less frequent peril of fire." "Guaranteeing 
the fidelity of officers and the performance of Contracts 
is insurance." "A contract guaranteeing a fixed revenue 
per acre for farming lands, and as a means of doing so 
agreed to pay a stipulated sum per acre for the crop 
grown upon the land, irrespective of its value, was a con- 
tract of insurance. The Court said the contract exactly 
met the requirements of an insurance contract." 

"So a contract which binds a company in consideration 
of a sum paid, to purchase at a fixed price the accounts 
which during one year a certain business firm should have 



20 

against certain ascertained insolvant debtors, or judgment 
debtors against whom execution should be returned un- 
satisfied, is an insurance contract." "Also a contract 
guaranteeing a party against the loss of a sum of money 
deposited in a bank is a contract of insurance." 

"The different kinds of insurance have now become 
as common as the risks to which life and property are 
subject." (Elliott on Insurance, sec. 6, 7, 8.) 
State In the State of Pennsylvania Acts of the General As- 

Leg-islation. sembly provide for the incorporation of Companies for 
insurance against fire, tornadoes, lightning, windstorms, 
for marine and inland insurance, for life insurance and 
annuities, for health and accident, live stock, steam, boiler, 
fidelity, surety, real estate title insurance and also against 
any unknown or contingent event or liability whatever; 
also for Fraternal and Beneficial Societies. 

Each State has its Special insurance regulations; and 
all insurance companies, both home and foreign, are under 
the supervision of the State Insurance departments ; their 
annual reports give an accurate account of the financial 
standing of each company and the business transacted. 

Having made a partial examination of the various 
systems of insurance, and some of the subjects 
covered, it will be proper to more fully consider: — 

FIRE INSURANCE : 

1. OBJECTS AND ADVANTAGES. 

2. DUTY OF THE INSURED. 

3. DUTY OF THE INSURER. 

4. HOW TO REDUCE LOSSES AND RATES. 

i.— OBJECTS AND ADVANTAGES. 

The original object of insurance was limited to the 
prevention of a pecuniary loss from falling with crushing 
effect upon the few by dividing it among the many. The 
mere payment of loss to a few is now but a small part of 
the advantages to be obtained by the Community. The 
great gain is that it stimulates credits whereby the Com- 
munity find employment and towns become prosperous 
cities. 



21 

The general commercial interests of the whole country 
are dependent upon the present Capital being continued 
in business enterprises, and that idle capital should be 
induced to seek investment. 

Insurance guarantees to capital that many of the risks 
to which it is exposed will be eliminated, and by the pro- 
tection thus offered Capital is free to enter the channels 
of trade. 

It is thus seen that insurance is one of the magnets 
that holds and controls the investment of Capital, and if 
discontinued or abused the whole community would suf- 
fer, as disastrous consequences would follow, viz. : — 

(i) Capital would withdraw from many business 
ventures ; mortgages would be foreclosed and many failures 
resulting. 

(2) The Community would be thrown out of employ- 
ment. 

(3) The Markets would be controlled by a few per- 
sons of wealth. 

(4) Rates for loans would advance, as capital will not 
take the chance of fire losses ; it would be cheaper to 

pay higher insurance rates than advanced interest rates, if 
without insurance. 

2.-DUTY OF THE INSURED. 
In order that the danger of fire should not be lost sight Dut ) T of 
of, London erected a costly monument to bear in per- 
petual remembrance the destruction of that City ; and it 
would be. well to erect a monument in every city calling 
attention to the fact that the same elements for a con- 
flagration exist in each city that destroyed Chicago, Bos- 
ton, Baltimore and San Francisco. 

After the introduction of insurance the losses became Insurance 
, , , 1 . , Promotes 

so frequent that some thought protection promoted care- Careless- 

lessness, and the advantages offered were outweighed by ness - 

the disadvantages. There may be some foundation for 

such a feeling, as it is found that increase of rates are 

met by a corresponding increase in losses ; and on the 

other side a decrease in insurance brings a decrease in 

losses. 



22 

With all the disadvantages, it is nevertheless indispen- 
sable to the financial credit of those engaged in business, 
and must be upheld for the benefit of the community. At 
the present time it is being subjected to overtaxation and 
excessive expenses ; and if insurance is to be maintained, 
the fire waste caused by general carelessness must be 
controlled, for if the same increased ratio of loss is to con- 
tinue, insurance will become too expensive and capital 
will not seek insurance investments. 

There is some data upon which to quote rates for the 
usual run of losses, but during the year (1906) a new 
element of danger presented itself in the form of an 
earthquake, cutting off the water supply and leaving San 
Francisco to the ravages of the flames. How frequent 
this new form of danger will reappear to upset the rate 
calculations must be left for the future to determine. 
Fires for For the ten years ending December 31, 1905, the losses 

Ten Years. p a ^ - m t ^ e United States by the Stock Companies (Amer- 
ican and Foreign) amounted to $905,000,000. 

This great loss of value has become a public calamity, 
and methods should be adopted to check the destruction. 
With every loss of a manufactory many are thrown out 
of employment who rely upon the daily wage for daily 
bread, and much of the distress to which labor is sub- 
jected is due to the carelessness in regard to property. 
Fires for During the year 1904 the fire waste in the United 

1904. States was 190 millions of dollars, and it should be firmly 

fixed in the mind that this destruction of property is a 
permanent loss of value to the Community. When cities 
like Boston, Chicago, Baltimore and San Francisco are 
destroyed the world is permanently impoverished by the 
event, and insurance cannot reinstate the destruction. 
The most that it can do is to create a new City by the 
use of funds previously collected from the Community. 

Insurance was never intended to take the place of the 
daily care due by the owner, although there may be fire- 
proof construction and an abundance of fire appliances. 
Daily house cleaning and watchfulness must never cease, 
and only after all safeguards have failed can the owner 
feel that he has properly performed his duty. 



23 

There can be no doubt that the System should be .urance 
guarded, and as early as 1729 the English House of Lords 
decided that the benefits of insurance should be limited 
to parties having an interest in the property at the time 
of insurance as well as at the time of the loss. While 
some protection was given to the System, by taking the 
insurance contract out of the class of wagers, yet many 
other questions must be left for settlement to the integrity 
and enlightened wisdom of the insured. 

The insured must not attempt to make a profit by a Robbing 
fire loss, and anyone who claims more than the actual nsurance * 
loss is robbing the whole Community and undermining 
the System of insurance. 

Many losses are caused by improperly constructed build- Dut y of 
, . , 1 • 1 r Munici- 

ings, and an inadequate water supply; it therefore becomes paiity. 

the duty of the Municipality to enforce judicious building 
laws and provide appliances for controlling and extinguish- 
ing fires. This can never become the duty of the insurer, 
and the most he can do toward the reduction of losses is 
to induce the insured to improve the risk by offering a 
reduction in the rate. 

The most dangerous attack to the System is the valued Valued 

Policy 
policy law now in force in twenty-one States, whereby i, aws . 

in cases of total loss to buildings the loss is to be adjusted 
by paying the face value of the policies irrespective of the 
true loss sustained by the insured. "This law has not 
only increased the cost of insurance by its temptation for 
dishonesty, but has a demoralizing effect upon the morals 
of the people by its tendency to induce them to put a fic- 
titious value upon the property when insuring, and then 
by means of gross carelessness, if nothing worse, selling 
it to the underwriters under the provisions of such per- 
nicious practices." * The final result worked out by the 
statute is that the rate is increased throughout the com- 
munity and the careless or criminal person obtains the 
funds. 



* Elliott on Insurance; J. Macbeth Brown, Chicago. 



24 



3.— DUTY OF THE INSURER. 



Duty of 
Insurer. 



Insuremot 
Prophet. 



Danger 

Signals. 



Business of 
197 Stock 
Companies 
for 1904. 



The insurer, appreciating the enormous responsibility 
placed upon the System, has his entire efforts directed to^ 
the fulfilling of its engagements. 

It must be admited that to properly conduct any branch 1 
of the business it requires years of practical experience; 
and as new conditions are constantly arising the insurer 
must be alert, not only to note the change, but to apply 
the remedy. 

The insurer must not be placed in the position- of a* 
prophet to forecast future events, as it is beyond his 
knowledge and control. The most that can be expected' 
of him is that his promise to meet a future loss is based 
upon an implied understanding that the business is con- 
ducted upon proper methods, and that the rates charged 
are thought to be adequate and the amount carried is not 
excessive. 

While the future losses are beyond the control of the 
insurer, yet the past furnishes information, and if it fails to 
act as a guide, will at least teach him to be prudent. 

The insurer who issues a policy in the present state of 
business is like the captain of a vessel who leaves port 
in the face of danger signals, for the insurer knows that 
the losses of the United States have been yearly increas- 
ing and are likely to so continue, and he further knows 
that no rate will be adequate to cover carelessness of the 
owner. 

The System as a whole has been able to meet the yearly- 
increasing losses (San Francisco excepted) from the 
annual premiums. A few figures may help to a better 
understanding of the matter: 

In taking the business of 197 Stock Companies in the 
United States for 1904, the premiums received were 220 
millions, upon which policies were issued promising to 
pay in case of loss 29^ thousand millions. Of course, the 
promise was made contingent upon loss happening. With 
anxiety the insurer awaited the end of the year, and when 



25 

it arrived the losses were found to be within the premium 
income, viz., 141^2 millions. 

If the losses had exceeded the premium income, the 
balance would have been met by past accumulations, 
which shows the value of a surplus. 

The rates charged at present about meet the usual run 
of losses, and were not intended to meet conflagrations. 
The losses paid in Baltimore not only consumed the 
annual premiums, but reduced the surplus ; while the 
San Francisco disaster not only swept away the surplus, 
but in many cases encroached upon the Capital, and the 
impairment was reinstated by the stockholders. 

As many of the Companies have not the same ability Conduct 
to meet their respective losses, it would be well to pursue B U ?Q es8 
what is considered safe business methods, and not to 
follow those which wreck the Company in order to obtain 
excessive profits. 

The destruction of New York, Chicago, Boston, Balti- 
more, San Francisco and other causes compelling many 
Companies to retire from business furnish sufficient expe- 
rience to show that a Company limiting its business to a 
single city cannot receive sufficient premiums from one 
locality to meet the losses of a conflagration, and while 
for a time local Companies, if policies be for moderate 
amounts, may be able to meet the usual run of losses, 
yet when large losses occur they disappear like an un- 
corked bottle in the ocean, that fills and sinks out of 
sight. Policies of companies doing a purely local business 
cannot be relied upon as offering the safest indemnity. 

Time will not permit of an examination of all the points 
to guide the careful insurer in the conduct of his busi- 
ness. He fully understands the premiums must be drawn 
from all sections of the country, and the amount of in- 
surance covered in each section should be so limited that 
in case of the total destruction of any one section it would 
not endanger the ability of the insurer to meet the loss. 

There is still another point worthy of mention, but 
time forbids of an extended explanation. It is a question, 
however, when not considered by those starting new 



26 

Companies will limit their existence. The point is, that 
in view of the requirement of a legal reserve the amount 
of business transacted is limited in proportion to its net 
resources, and a Company writing a very large business 
with comparatively small Capital and Surplus may be 
compelled either to reinsure its risks or be forced into the 
hands of a Receiver. 

As the Community look to the insurer to meet his obli- 
gations, the insured must expect to pay premiums ade- 
quate to meet the losses. 

A person may be benefited by obtaining goods below 
cost, but a great difference exists between the purchase 
of goods and that of insurance. He may pay for the 
goods and carry them away, but the promise of the in- 
surance payment, being in the future, may be impaired 
by the inability of the Company to meet the loss through 
inadequate rates, and then the insured has no one to 
blame but himself. 

The insurer is nothing more or less than an agent of 
the Community to fix a rate that he may think will be 
adequate according to the particular risk and then to 
collect small sums, called premiums, from the many and 
to pay out larger funds to the necessarily fewer number 
who may have suffered loss. 

While the insurer is to fix the rate, it is a difficult prob- 
lem to determine what amount should be charged to 
meet unknown losses. In a Stock Company if the amount 
charged is too low the Company suffers, while in a 
Mutual Company the insured suffers. 

The subject is too important to allow its solution to be 
determined by any one Company, and can only be settled 
by the combined experience of many Companies, 
ranee Throughout the United States Associations of Fire 

Associations Underwriters have been formed and have been of great 
benefit to the Community, by preventing the destruction 
of property and giving reduction of rates for improvement 
of risks. These Associatious have been doing work 
properly belonging to the municipality. 

The idea of the insurers meeting to evolve proper 
methods of conducting the insurance business is not con- 



\S 



27 

fined to this country, but is common in Europe and has Associations 
been in vogue in England, Belgium, Italy, Austria, Nor- 
way, Sweden, Denmark and other localities. 

It has sometimes been felt that these Associations of Are . ,. 

Associations 

Insurers are in the nature of trusts, to crush out compe- Trusts? 
tition and make exorbitant profits, but such a view is 
incorrect. There is always room for new Companies to 
take the place of those fallen by the wayside ; and 
as far as profits are concerned the carelessness of the 
insured and the unexpected conflagrations forbid any 
great profits from being made. 

The Association of Fire Underwriters, for the making Associations 
of rates and regulations for correct methods of business, ttie Tariff, 
is somewhat similar to the protective tariff of the United 
States, in the fact, that while in both cases they may act 
in partial restraint of trade, yet are both beneficial and 
necessary to the Community; the tariff builds up manu- 
factures, while the insurer reinstates the manufacturer in 
case of loss. 

The insurer who provides the funds for the payment 
of losses has a paramount interest in maintaining the Asso- 
ciation, as he fully understands that if the fires could be 
reduced, the reduction of rates would necessarily follow 
and the business would be more profitable. 

Many of the leading underwriters have taken the stand Shall 
that the Insurance Company has nothing to do in the improved? 
improvement of risks, but should simply charge a rate in 
accordance with the present condition of the property, be 
it good, bad or indifferent ; while others, with more ad- 
vanced thought, not only charge the rate to carry the 
present condition, but feel it to be their duty to suggest 
improvements in order to reduce the rate, believing there 
will be more profit in good risks at low rates than poor 
business at high rates. This latter thought is left to be 
accomplished by Boards of Underwriters, and is the basis 
upon which they are managed. 

Note. — A valuable Historical Lecture on Fire Protec- 
tion, by George Cuthbert Gillespie (1905). 



28 



4.— HOW TO REDUCE LOSSES AND RATES. 



Community 
Command 
the 
Situation. 



Fire 
Marshal. 



Powers of 
Act, 1903, 
Should be 
Increased. 



Use Drastic 
Measures. 



Putting aside all theory, and looking at the matter in 
a practical light, it must be admitted that the Community 
have the entire control of the situation, and the insurer 
is simply an agent to carry out its wishes. 

The Community alone furnish the fires, while the in- 
surer is expected to collect sufficient funds to meet the 
loss. It should be mutually understood that the greater 
the loss the higher the rate, and the smaller the loss the 
less the rate, but no method can be suggested to meet 
large losses by inadequate premiums. 

If the Community expect losses to be promptly paid, 
they must furnish premiums to meet the demand, and 
there is no difference in this regard, whether the policy 
be issued by a stock or mutual company. 

The vital question at issue is not the ability of the 
insurer to meet the losses, but how can the destruction 
of a city be prevented. 

Many experiments to prevent losses have been tried, 
but the results have not been satisfactory ; another remedy 
left is to force the community to a higher level ; until this 
is accomplished losses will still continue and the rates 
will correspondingly increase. 

By the Act of 24 March, 1903, and the Ordinance of 
24 May, 1904, the Fire Marshal's Department is au- 
thorized to remove certain defects, but the act is so lim- 
ited and the appropriation by Councils so small that lit- 
tle can be expected. 

In order to properly cope with the dangerous situation 
the act should be expanded to cover all business risks, 
and a liberal appropriation should be made to engage 
sufficient expert insurance surveyors to examine each 
building and constantly patrol the district in which de- 
tailed, in order to keep the property in good order; and 
the insurer should not issue a policy to one whose prop- 
erty is not in proper condition or whose business is care- 
lessly managed. 

If all these remedies fail, the last and most drastic 



29 

measure is to limit the insured in the amount of the claim, 
irrespective of the insurance carried. 

This proved effective in a certain class of manufac- 
tures, where fires were of frequent occurrence. It was 
found by attaching a 75 per cent, loss clause the insured 
lost 25 per cent, on each fire, and as losses proved un- 
profitable the fires ceased. 

In Italy the same situation was solved by making the 
insured suffer one-tenth of the loss, and in Germany the 
insured assumes 25 per cent, of the risk. 



• 



CONTENTS 



Systems of Insurance, Viz. ; — 

I. Governments . . ... . . ..... . K 4 

II. Guilds . 7 

III. Fire Briefs, or King's Letters 12 

IV. Individual Underwriters . . .13 

V. Private Corporations .,."■"; 15 

Fire Insurance, Viz. : — 

1. Objects and Advantages .20 

2. Duty of Insured .21 

3. Duty of Insurer 24 

4. How to Reduce Losses and Rates . . . . . 28 



REFERENCES 



Beddall. 


Hammurabi. 


Santerna. 


Brentano. 


Haydn. 


Seutonius. 


Brown. 


Lecky. 


Shakespeare. 


Campbell. 


Livy. 


Smith's Wealth of 


Dunham. 


Ludlow. 


Nations. 


Elliott. 


Mag-ens. 


Smith. 


Einerigon. 


Marco Polo. 


- ■ Spectator. 


En eye. Brit. 


Naudet. 


Straccha. 


Exodus. 


Park. 


Supplee. 


Farnum. 


Phillips. 


Thompkins. 


Fowler. 


Pliny. 


Walford. 


Gillespie. 


Puffendorf. 


\ Wilda. 



.B S '12 



LIBRARY OF CONGRESS 



027 272 465 9 



